Anti-Corruption Groups Come Out Against Tax Holiday

A proposed “repatriation tax holiday” that would allow U.S. multinational corporations to bring home out-of-country profits at a lower tax rate has led anti-corruption organizations to join an opposition group of odd bedfellows.

Sen. John McCain (R., Ariz.), Sen. Kay Hagan (D., N.C.), and others have proposed legislation that would allow profits brought into the country from abroad at a reduced tax rate. They argue the influx of offshore profits would help create jobs.

On Tuesday, the Financial Accountability and Corporate Transparency Coalition, Global Financial Integrity, Public Citizen and other good governance groups signed onto a letter to Congress Tuesday railing against the tax holiday. They were joined by a smorgasbord of religious groups like the Pilgrim United Church of Christ Carlsbad, Calif. and tax reform groups like Citizens for Tax Justice. Even the Heritage Foundation has come out against the holiday.

Most oppose the tax holiday on the grounds that it would not lead to an increase in domestic investment, but would be used by companies to reward shareholders, largely through dividends and stock buybacks.

Spokesmen for McCain and Hagan didn’t immediately respond to requests for comment.

A study commissioned by the Senate Permanent Subcommittee on Investigations, which Levin chairs, found that during a similar holiday in 2004, much of the money brought back came from offshore tax havens, and in the years since companies have increased the amount of money they keep in tax havens.

Tax havens are one of Levin’s pet peeves. In addition to shielding companies from their tax responsibilities in the U.S., tax havens also bad for law enforcement, according to Levin, because many lack strong money laundering controls and have secrecy barriers that make it difficult for investigators, among other things.

Levin has been out in front of this issue for a while. In July, he re-introduced the Stop Tax Haven Abuse Act, which would close tax loopholes and establish legal presumptions to overcome secrecy barriers, among other things.

“The Senate Permanent Subcommittee on Investigations, which I chair, has spent more than a decade exploring how offshore tax havens conceal wealth, distort commerce, and abet crime, money laundering and corruption,” Levin said during a speech in April. “The truth is that tax havens have declared economic war on honest countries, including the United States by helping U.S. taxpayers dodge U.S. taxes and rob the U.S. Treasury of needed funds.”

Essentially a tax holiday would encourage abuse of tax havens, which in turn abet money laundering and corruption, critics say.

But some argue that it’s not fair to conflate tax havens with sketchy, money-laundering locales. Many well-known offshore tax havens (the Cayman Islands, the Bahamas, Liechtenstein, and others) have been removed from the Financial Action Task Force’s blacklist of countries not up to snuff on anti-money laundering laws.

A spokesman for McCain didn’t immediately respond to requests for comment. In a statement provided to Dow Jones, Hagan said bringing profits back at a reduced tax rate was better than leaving them offshore.

“Allowing companies to bring overseas earnings back to the United States and moving towards a territorial tax system would ensure that corporate earnings are back in the United States where they can be monitored, taxed and put to work growing our anemic economy,” Hagan said.

Opponents of the holiday feel differently. Nicole Tichon, the executive director of the Tax Justice Network USA, a tax advocacy group, said that the holiday promotes use of tax havens.

“The policy rewards the worst actors and encourages more secrecy in an already bad system,” Tichon said. “The race to the bottom in terms of tax, gives criminals and corrupt dictators the same tools as big corporations to keep the real location of their assets fluid.”

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